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Sam
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Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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My wife and I separated in July 2009 and are currently going

Resolved Question:

My wife and I separated in July 2009 and are currently going through the divorce process. We jointly own a rental property valued at £205K, with an £80K interest only mortgage, which now needs to be sold. This property was my wife's residence until 1999, after which she moved in with me until we seperated (she now has her own house).
My question - Is there a tax benefit in selling this rental property after the Decree Absolute, or does it make no difference (from a CGT perspective) as we have been separated for a number of years?
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi
Thanks for your question, I am Sam and I am one of the UK tax experts here On Just Answer.
It will make no difference (and also nothing to do with the separation or divorce) with the capital gains.
Your wife will be due private residence relief for the time this was her main residence, and then private lettings relief (assuming all rental income was declared to HMRC)
You will only be private residence relief and private lettings relief if
1) You lived in this property as your main residence and
2) The transfer was made also into your name whilst this was still your main residence.
The tax year of separation and this property and its affect for capital gains, would only have any bearing, if you were planning to transfer a share to the Other (so they had a the whole ownership)
And then that transfer could be treated as exempt between the two of you, IF this has taken place in the tax year of separation OR there was an order detailing the transfer of assets and their division, drawn p in the tax year of separation.
But as you plan to sell, it makes no difference at all, its then just a question of what your capital gain tax bill is, based on what tax reliefs you may or many not be entitled to.
Thanks
Sam
Customer: replied 2 years ago.

Hi Sam

Thanks for your very fast response.

For clarity, the rental property was never my main residence. At the financial mediation in 2009, ownership of the rental property was transferred to 'joint names' (previously in the sole name of my wife) as part of the financial settlement, on the understanding that as and when sold, the balance after costs would be equally divided. We now intend to sell and divide the balance from the sales after repaying the mortgage and deducting the selling cost.

From your reply, it looks as if we will be separately liable for the CGT on our individual portions (circa £60K each gross) at the appropriate rate. Am I correct.

Many thanks....Neil

Expert:  Sam replied 2 years ago.
Hi Neil
Thanks for your response
Yes you are correct, you will be considered for capital gains separately and retain a separate liability (which would have also been the case as soon as the property was put into joint names)
Then you will have capital gains on your share of the profits.
So for each of you for your share you will need to know (and advise HMRC)
1) sale price less purchase price this forms the initial gain
2) From this initial gain you deduct the costs to buy and sell (such as legal fees, estate agents fees stamp duty etc(
3) Then deduct the costs of any capital improvements, such as new kitchen, bathroom etc
4) The figure left over then is considered for any tax relief, and in your case this will be NIL on your share
5) Finally the first £11,000 of the gain is exempt (as this is this years annual exemption allowance) with any remaining gain liable to capital gains tax.
If you do not complete self assessment tax returns then alert HMRC to the sale of this property once sold, so they can arrange to issue you with a self assessment tax return.
Let me know if you have any follow up questions on the information I haver provided, but it would be appreciated if you could rate/accept the answer, as this ensures that Just Answer credit me for my time.
Thanks
Sam
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